CFE 2015: Start Registration
View Submission - CFE
A0596
Title: Catching-up, leapfrogging, and falling-back in economic growth: A nonparametric approach Authors:  Harry Haupt - University of Passau (Germany)
Joachim Schnurbus - University of Passau (Germany)
Willi Semmler - New School for Social Research (United States)
Joachim Schnurbus - University of Passau (Germany) [presenting]
Abstract: Classical growth convergence regressions fail to account for various sources of heterogeneity and nonlinearity. Recent contributions advocating nonlinear dynamic factor models remedy those problems by allowing for club-specific convergence paths. Unfortunately and similarly to statistical clustering methods, those results are sensitive to choices made in the clustering mechanism. We improve existing clubbing algorithms while providing an economic rationale for dependence and heterogeneity of number, size, and composition of convergence clubs over time. We propose a nonparametric strategy for tackling neglected heterogeneity and nonlinearity jointly while alleviating the problem of underspecification of growth convergence regressions. Furthermore, based on the club-specific transition paths derived from the factor model, we are able to estimate convergence effects not only on club- but on country-level. The proposed approach is illustrated using a current Penn World Table data set. We find empirical evidence for leapfrogging and falling-back of countries over time. Guise and degree of nonlinearities in convergence regressions also differ substantially over time. Furthermore, some countries on club-based convergence paths exhibit, in contrast to their fellow club members, insignificant convergence effects.